We define the barrel bill as the value of aggregate oil imports by net oil importing economies as a share of these countries' combined GDP (for more details, see Box 3 below). At around US$2.3 trillion, the (first stage) wealth transfer from oil importers to oil exporters in 2011 reached all-time highs in dollar terms. As a share of aggregate oil importers' GDP, the barrel bill has surpassed the 2008 level of 3.2%. Put differently, over 2010 and 2011, the barrel bill has more than fully recovered the 1.2% of oil importers' GDP drop that it suffered between 2008 and 2009. In terms of aggregate oil exporters' GDP, the value of global oil trade last year was around 23.3% - compared to the all-time high of 23.7% in 2008.

The big event in Scandinavia in the past week was the monetary policy meeting at Norges Bank. The Norwegian central bank surprised the market by cutting rates by 25bp to 1.50%. Norges Bank also said that rates would stay at the current level until 2013. The Norwegian central bank now obviously puts much more weight on the strength of the currency. Central bank governor Olsen said in the press release, “The continuing downturn abroad and the strong krone are contributing to keeping inflation low and are weighing on growth in Norway. Against this background, the Executive Board has decided to reduce the key policy rate”. A rhetoric very different from the Annual address February 19. Here Governor Olsen said, “The question nonetheless remains of whether it is desirable to use monetary policy to accelerate the pace of inflation … Even if the krone depreciates somewhat, relatively high cost growth in Norway that could quicken the pace of inflation might lead to a further deterioration in competitiveness. This cannot be the way to go.”

Treasury yields moved sharply higher this week as fears about the European Financial Crisis subsided and confidence about the strength and sustainability of the U.S. economic recovery continued to improve. The early release of the Fed’s bank stress test results also buoyed confidence and the stock market. The joy and jubilation has taken the equity market to its highest levels since June 2008. Given the recent run of stronger economic reports and reduction in fears about Europe and the global financial system in general, yields were way too low.

Statements by the Federal Open Market Committee usually move markets. This week was no exception. While the Fed signaled no material change in policy – it maintained its commitment to keep interest rates exceptionally low and announced no new asset purchases – Tuesday’s statement fueled risk taking in equity markets and a corresponding sell-off in Treasuries. On Thursday, the S&P 500 closed above 1400 for the first time since June 2008. As of writing, yields on 10-year Treasury notes had risen 27 basis points since Monday, and are currently hovering around levels not seen since last October.